A shocking income tax miscalculation has resulted in 8.7 million retirees being overcharged on their state pensions. The error is said to have accumulated a whopping £43.5 million over 12 months and has not yet been resolved.

Pensioners have been overcharged by roughly £5, but what's worse, Labour allegedly knew all this time. Pensions minister Torsten Bell confirmed this to be the case. He admitted the government had been aware of the issue since at least June last year.

Mr Bell said: "We have become aware that for a small subset of customers in receipt of the state pension, [there has been] a calculation error".

The controversy arises from a glaring mismatch between official HMRC guidelines and the actual data utilised to determine the tax burdens of millions of retirees.

According to the tax office’s own regulations, the taxable state pension amount should be based on a single week at the preceding year’s reduced rate, followed by 51 weeks at the updated level.

This specific calculation is designed to account for the brief gap between the launch of a fresh tax year and the first Monday when increased pension payments finally kick in.

Instead, HMRC has been caught overtaxing pensioners by applying the top rate across the full 52 weeks, having blindly relied on figures provided by the Department for Work and Pensions.

A former HMRC employee who identified the discrepancy believes the issue may have persisted since the 2023-24 tax year. Tax expert Mike Warburton, who first highlighted the problem in May, said the situation represented a serious failing within the Government. Mr Warburton said: "We have two Government departments at odds with each other and potentially the whole pensioner population being overcharged. They've taxed pensioners more than they say the law requires, so it's to the taxpayer's disadvantage. I think HMRC has got itself into a big hole."

Robert Salter, a director at tax advisory firm Blick Rothenberg, said many of those affected would have been unlikely to notice the discrepancy themselves. Mr Salter said: "You're going to assume it's correct. Let's be honest, almost nobody is going to double-check that. The bigger issue is that, especially for people on relatively low incomes, this tax matters. It's money you could have spent that HMRC haven't legally got the right to have."

Incorrect figures were still appearing on pre-populated tax returns for the 2025-26 tax year as recently as last month. When questioned in Parliament in September last year, exchequer secretary Dan Tomlinson said that "most pensioners pay the right amount of tax in real time". He suggested that "affected individuals can call HMRC to amend any incorrect figures of state pension".

A HMRC spokesman said: "We apologise to those affected by this error and are working at pace to fix the issue, although the impact is small with the difference in tax owed being around £5 in most cases." Official sources have indicated that the problem is expected to be resolved later this summer.